Netflix exceeds Q4 subs forecast

Netflix has reported 7.05 million net new members globally in Q4 2016 against its forecast of 5.2 million and 2016’s Q4 performance of 5.59 million. This represents the largest quarter of net additions in its history and was driven by strong acquisition trends in both its US and International segments.

As the streaming giant revealed its Q4 2016 Financial Results, it said in a Letter to Shareholders that in the quarter, global streaming revenue grew 41 per cent year over year to $2.4 billion (€2.26bn), while contribution profit rose 74 per cent year over year to $470 million (20 per cent margin).

Operating profit totalled $154 million (6.2 per cent operating margin) against guidance of $125 million, while net income amounted to $67 million, compared with Netflix’s forecast of $56 million.

Domestically, Netflix added 1.93 million members in the quarter, exceeding its forecast of 1.45 million and 1.56 million in the year-ago quarter. Combined with 15 per cent ASP growth, revenue increased 27 per cent year-over -year to $1.4 billion.

International membership grew by 5.12 million in Q4, against a forecast of 3.75 million and 4.04 million in the year-ago quarter. Over 47 per cent of our total members are now outside of the US. This growth was very broad-based geographically as Netflix’s original content continues to be well-received all over the world. It expects a greater membership impact from its content slate in the second half of 2017.

“We are in no rush to push margins up too quickly, as we want to ensure we are investing aggressively enough to continue to lead Internet TV around the world. In Q1, we are forecasting a 9 per cent operating margin, higher than our full year target due to the timing of content spend, including moving House of Cards season 5 from Q1 to Q2,” it says.

“We anticipate the international segment will be slightly contribution profit positive in Q1. We plan on investing over the remaining quarters of 2017 internationally and, as a result, anticipate an international contribution loss in Q2. On a full year basis, we expect international contribution loss to improve substantially year on year,” it advises.

In terms of content, Netflix says it is “learning rapidly” how best to match content with audience tastes around the world. “It is clear to us that high quality content travels well across borders. For instance, our global originals like Marvel’s Luke Cage, The Crown and season 3 of Black Mirror continue to generate excitement and excellent viewing all across the world. Similarly, Gilmore Girls: A Year in the Life debuted in the top 10 in every territory,” it reports.

“We are incredibly excited about all the projects we have underway for our global members, no matter their age, taste or cultural background; in 2017, we plan to invest over $6 billion on content on a P&L basis (up from $5 billion in 2016),” it says.

Having launched offline viewing in Q4, which allows members to download content to iOS and Android devices, Netflix says its goal is to make the service as accessible as possible to members in countries and locations (such as subways and airplanes) with limited and/or expensive bandwidth. “We are pleased with the initial results and, as expected, enjoyment of offline viewing is greatest in emerging markets, where the broadband infrastructure is less robust,” it notes.